The White House and the U.S. Treasury Department have outlined the goals of President Joe Biden’s tax plan, which include provisions to raise corporate taxes and eliminate incentives that allow companies to move profits overseas. These moves would mark the first major tax hike since the early 1990s. As a presidential candidate in 2020, Biden had also called for raising taxes on those earning more than $400,000, while benefiting lower-income families with tax credits for health insurance, childcare, long-term elderly care and first-homebuyers. Let’s break down what the various tax proposals of the Biden administration could mean for American corporations and you.
Note: This is a developing story, and we will continue to update the article as more information becomes available.
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Biden’s Tax Plan Basics
While a formal tax package has not yet been officially released, a number of proposals have been released that would bring big changes to the tax structure of the United States.
This comprehensive overhaul of the tax code is broad in scope, and it will impact corporations, employees, industries and taxpayers.
Here are the broad-strokes planks in the forthcoming economic plan from the Biden White House:
- Increasing the corporate tax rate from 21% to 28%
- Increasing the global minimum tax from 10.5% to 21%
- Raising individual income taxes for those earning more than $400,000 annually, from 37% to 39.6%
- Expanding the estate tax
- Raising the capital gains tax for those earning at least $1 million annually
- Pruning tax advantages for certain types of businesses
These were among the proposals Biden made when he was still on the campaign trail and aiming to differentiate his tax policies from those of President Donald Trump. Some of the other planks in his platform then included raising taxes on foreign profits and ending real estate loopholes. Though there has not been any news about these potential plans, remember that this is still merely speculation; the outcome of the actual bill may include or exclude certain elements that have been floated.
Facing Republican opposition, Democrats may have to rely on the budget reconciliation process to get the various elements of the tax plan approved with a simple majority in both chambers of Congress, as they have already done with the American Rescue Plan in March 2021.
As stated earlier, Biden’s tax plan was presented briefly with the American Jobs Plan, which is the first part of the Build Back Better plan. The second part will focus on the American Families Plan, and it is expected to outline specific increases for individual taxes that will fund it.
How Will Biden’s Tax Plan Affect Individual Taxpayers?
During the 2020 presidential campaign, Biden listed progressive tax reform among his top priorities. His intention is to make corporations and the wealthy pay their “fair share” of taxes while providing relief for working class families.
The Biden tax plan will raise taxes for individuals earning over $400,000 and create tax credits for low- and middle-income families. Biden’s tax reform aims to reverse tax cuts made by the 2017 Trump tax plan, and expand or create tax credits for childcare, elderly care and first-homebuyers, as well as extend tax benefits to working families saving for retirement.
More information about Biden’s individual tax proposals will become available in upcoming weeks when the American Families Plan will be presented. Individual tax increases are expected to fund individual and caregiving programs.
This table breaks down eight key components of Biden’s tax plan for individuals based largely on tax policies presented during his presidential campaign:
|Biden Plan: Individual Taxpayer Breakdown|
|Raise Top Individual Income Rate to 39.6%||Biden will roll back the top individual federal income tax bracket from 37% to 39.6% for incomes above $400,000.|
|Raise Capital Gains Taxes for the Wealthiest||Taxpayers making over $1 million will have to pay a higher tax rate of 39.6% on investments. Currently, capital gains taxes are levied at 20% for individual taxpayers with income over $445,850. Biden’s tax plan will make the wealthiest taxpayers pay the same tax rate for investments as they do on wages.|
|Increase Estate and Gift Tax and Reduce Exemption||Biden proposed on his campaign reducing the current estate tax exemption from $11.7 million to $3.5 million, and increasing the maximum estate tax rate from 40% to 45%. This would roll back the estate and gift tax rates and exemptions back to 2009 levels.|
|Health Insurance Tax Credit||This tax credit aims to cap health insurance costs at a maximum of 8.5% of a family’s income by expanding access to refundable health premium tax credits.|
|Childcare Tax Credit||Low and middle-income families will get a maximum of $8,000 in tax credits, which could result in additional tax relief of up to $6,800.|
|Elderly Care Tax Credit||The credit targets working families caring for elders with physical and cognitive needs, and will cover a percentage of eligible expenses above an established threshold. It will also increase tax benefits for older taxpayers with long-term care insurance.|
|First-Homebuyers Tax Credit||Qualifying homebuyers could get up to $15,000 when they make a purchase instead of claiming it the following tax year.|
|Equalize Retirement Plan Tax Benefits||Biden wants to “equalize benefits across the income scale” for retirement so that working families can also get tax benefits for retirement savings.|
How Will Biden’s Tax Plan Affect Corporations: The Made in America Tax Plan
One specific proposal made by the Biden administration is the Made in America Tax Plan. The White House fact sheet says that the tax plan aims “to fix the corporate tax code so that it incentivizes job creation and investment” in the United States. The proposed tax changes intend to raise over $2 trillion in the next 15 years to fund the American Jobs Plan and reduce deficits.
The goal of this plan is essentially to make it more likely American companies and the jobs they offer stay in America by making it less enticing to offshore jobs and operations to other countries.
This plan contains provisions that will impact multinational corporations. These include raising the corporate tax up to 28%, setting a 15% minimum tax on the book income of large corporations, eliminating expense deductions for offshoring jobs and preventing companies from inverting or claiming tax havens as their residence to avoid paying taxes.
Biden’s tax plan will be a significant reversal for corporations that benefited from the 2017 Trump tax cuts, and it also includes a number to tax credits that aim to create American jobs, upgrade small businesses and incentivize clean-energy.
This table breaks down eight key components of Biden’s tax plan for corporations based on the White House fact sheet:
|Made in America Tax Plan: Corporate Breakdown|
|Raise the Corporate Tax Rate to 28%||Before the Trump tax plan, the corporate tax rate was set at 35%. The Republican 2017 corporate tax reduction cut the rate by almost half to the current 21% flat tax for all businesses. Biden is essentially seeking to split the difference by setting a new corporate rate of 28%. This increase aims to generate $1 trillion in additional revenue over 15 years.|
|Increase Global Minimum Tax to 21%||The plan will increase the global minimum tax on U.S. corporations from 10.5% to 21% and then calculate it on a country-by-country basis. Multinationals currently shift profits and jobs overseas with a tax exemption for the first 10% return on foreign assets, and the rest is taxed at half the domestic rate.|
|Prevent Tax Havens for U.S. Corporations||Biden will prevent U.S. corporations from inverting or claiming tax havens as their residence which would allow them to avoid paying U.S. taxes. Currently, U.S. corporations can acquire or merge with foreign companies to claim that they are a foreign company even though they continue to manage and run operations in the U.S.|
|Eliminate Expense Deductions for Offshoring Jobs||This change aims to eliminate and replace tax expense deductions that U.S. companies can write off from offshoring jobs and provide a tax credit to support the on-shoring of jobs.|
|Eliminate Loophole for Intellectual Property||Biden will eliminate the Foreign Derived Intangible Income (FDII) enacted by the Trump tax plan, which the White House describes as an intellectual property loophole that allows corporations to get tax breaks for shifting assets abroad. This revenue will be used to expand R&D investment incentives.|
|Enact a 15% Minimum Tax on Large Corporations||The plan will apply a 15% minimum tax on the book income of the largest corporations. This is the income that corporations use to report profits to investors.|
|Eliminate Tax Preferences for Fossil Fuels||Biden will eliminate current subsidies, loopholes and special foreign tax credits available to the fossil fuel industry. It also makes polluters pay into a Superfund Trust Fund to cover the cost of cleanups.|
|Invest in IRS Resources||The plan will increase IRS funding to enforce the tax law and prevent tax evasion from corporations and high-income Americans. The White House says that 10 years ago almost all large corporations were audited annually, but today that number has fallen to less than half.|
President Joe Biden’s tax plan — progressive tax reform that represents a major shift from the 2017 tax plan — includes raising taxes on those earning more than $400,000, while benefiting lower-income families with tax credits for health insurance, childcare, long-term elderly care and first-homebuyers. Biden’s Made in America Tax Plan aims to raise corporate taxes and eliminate incentives that allow companies to move profits overseas. Biden’s tax plan still has to be presented and approved with a vote in Congress before it can get signed into law. More information about individual tax increases will be available in upcoming weeks when the American Families Plan is presented.
We will continue to update this article as soon as new information becomes available.
- If you need help navigating your taxes or any other financial questions, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool connects you with financial advisors in five minutes. If you’re ready to be matched with advisors, get started now.
- Do you want to know how much you’ll be paying in various taxes based on your income? Use SmartAsset’s calculators for income tax, property tax and capital gains tax to find out.
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